Sideways moves grapple Lead

It was surprising to see that the prices of Lead only registered marginal gains when its peers like Zinc, Copper and Nickel remained outperformers all thorough October. Meanwhile Lead was mostly been contended with lower demand outlook and higher surplus scenario. The sharp rally seen in August and September months were missing during October and initiation of November. The news of Lead smelters being shut and supply hampered got discounted which affected the daily price movements adversely. Prices of Lead shot up during September when China shut down its smelters on the news of Lead poisoning in major production areas. But in current situation stockpiles in China have been more than the usage which has brought the prices to remain sideways. Estimates are that the at least 300000 tonnes of Lead is in stockpiles in China. This has helped offsetting the deficit due to poisoning incidents. However, the Lead prices registered meager gains during the month ended October. The prices tested a high of LME at $ 2436 per tonne on 22^nd Oct 2009 and a low of $2109 per tonne on 2^nd Oct 2009 with an overall rise of 5.6% in the month. In the first four sessions of November the prices have been range bound. The market breadth suggest that the prices of Lead will be under some sort of stress in coming days and the rise if any will be limited and short lived.

World refined Lead market in surplus-

The global Lead market was in surplus of 57000 tonnes in the first eight months of the year (Jan-August 2009) as per the latest monthly report from International Lead and Zinc Study Group (ILZSG). According to the report during the first eight months of 2009 world refined Lead metal usage was 5727000 tonnes up 0.1% as against 5721000 tonnes during the corresponding period previous year. The world Lead refined output for the period of Jan-August 2009 was 5784000 tonnes up 1.6% as against 5692000 tonnes for the corresponding period previous year. World Lead mine output declined by 1.7% to 2533000 tonnes as against 2578000 tonnes in Jan-August 2008.

Australia, Peru, and Canada registered declines in refined metal output but that was offset by increase of production in China, Bolivia and Mexico. Chinese apparent Lead usage increased 26.5%. The total net imports of refined Lead in China during the period of Jan- August 2009 was 1420000 tons compared to a meager 14000 tonnes of refined imports during the corresponding period pervious year.

The latest forecasts by ILZSG suggest that the global refined lead metal usage is forecasted to increase by 3% to 8.91 million tonnes in 2009. For the year 2010 the usage is expected to increase further by 7.2% to 9.55 million tonnes. Demand will be severely hit by the recessionary conditions. The demand from US is expected to come down by 4.9% in 2009, however this will be followed by a increase of 2.5% in 2010. The demand from Europe will be worst hit and expectations are that the same will decline by 15.6% in 2009; this will be its lowest level in more than 50 years. In the year 2010 the demand is expected to increase by 8.8%. China will remain the key driver of growth of demand of refined lead. In China growth is forecasted to increase by a whopping 25% in the year 2009 while in 2010 the growth is expected to increase by 7.8%. China will be accounting for 45% of the total world demand in the year 2010.

Global Lead mine production is expected to increase by 1.3% to 3.94 million tonnes with further increase in China. For the year 2010 the mine production is expected to increase by 5.8% to 4.17 million tonnes. World refined metal production is expected to increase by 3.4% to 8.99 million tonnes, this is forecasted to increase further by 7.4% due to commissioning of new plants in India and Brazil and higher production in China, Germany, Italy, Japan and US.

Indian primary Lead production misses production targets

Indian primary Lead production missed actual production targets by more than 33.3% in the month of September. Total production during the month of September was 4422 tonnes as against a production target of 6637 tonnes from Hindustan Zinc. Indian Lead is gearing up for production from its plants at Thane and Kolkatta and therefore the production was not reported. Total installed capacity for Indian Lead is 24000 tonnes. During the period of April-September total production of refined Lead was 26783 tonnes down by 10.2% from the corresponding period of 2008. Cumulative production for the period of April-September 2009 also missed the production target by 24% or 35203 tonnes.

Range trading in domestic markets

The metal used in batteries has run up 126 percent on LME so far this year. In October the prices have gained by 5.6 percent to $2345 per tonne on 30^th Oct 2009. In November prices have averaged $ 2310 per tonne. The inventories levels are on a higher side as well. The stockpiles have rose by 3025 tonnes or 2.36% since October to 130800 tonnes on 6^th Nov 2009. In Domestic futures markets, MCX Lead prices were in the range of Rs 98-114 per kg during October and few sessions of November. The benchmark contract faced dip during the initial period of October from where it saw consolidation. The prices saw spikes during the end of October because of fall in the value of Dollar against the EURO.

Outlook:

Lead prices are expected to remain range bound during November with negative bias. The demand for Lead is anticipated to face a hit due to fall in the usage of e-bikes in China. China is the main consumer of Lead in the world but due to start of winters the demand for e-bikes are expected to slow down, which will be reducing the usage of Lead. The official data from the China is forecasted to show a decline in the total sales of the e-bikes in the month of October. However the demand for passenger cars is expected to remain constant which will be assisting batteries demand to fall drastically. The stockpiles in China as well as rest of the warehouses across the globe are high which will ensure that every rise in the prices will be facing supplies. In domestic futures market Lead prices will be hovering between 117 per kg. This is the same range in which Lead kept trading in all through October as well.

Copper: Cracks Emerging At Higher Levels

Copper prices recently tested a high of $ 6968 per tonne on the LME. The prices have so far increased 5% in November. Less emphasis was paid to the declines in off take from majors consumers like China while more focus was on the appreciation of EURO against the Dollar. Inventory levels were on a high but that hardly made any difference to the bullish sentiments of the speculators.

The commodity prices have sky rocketed in the last six months. The lower levels in Commodities after the slump in global economy lured China to increase their reserves in the Base metals. The prices overrun their fundamentals but further decoupling was seen when the Dollar fall was taken as a major trigger. The reserves from China are already quite high and if ministry sources from China are to be believed the stockpiles are able to suffice even the 2010 demand.

China holding ample of stocks:

China's imports of refined copper in October dropped 40.1 percent to 169374 tonnes from 282828 tonnes in September. The declining trend in imports has started on monthly basis, though yearly imports data suggest a rise in the imports of Copper by 31.37 percent. Imports for the period of January-October in China were 2.75 million tonnes. Narrowing of price differential between LME and Shanghai has caused lower arbitrage opportunities. China refined Copper demand declined by 20 percent in October to 544000 tonnes. Infact all the major Base metals registered a fall in the demand. The coming months are expected to see the fall in the imports of Copper from China to continue.

Chinese State Reserves Bureau has stopped buying of further metal and Copper scarp imports have increased which is an indicator that the refined Copper will face pressure because of high refined Copper production. The Australian Bureau of Agricultural and Resource Economics (ABARE) predicts Copper prices in second half of 2009 to average at $ 6065 per tonne.

World Copper Markets In Surplus:

International Copper Study Group (ICSG) in its recent released forecast expects in 2009 refined Copper balance will show a surplus of 370000 tonnes metric tonnes. Decline in production due to strikes in the major mines will not be impacting the surplus as demand is expected to be feeble.

The latest monthly report from International Copper Study Group (ICSG) was released in November. The report showed that the apparent refined copper balance for the month of August 2009 had a surplus of around 150000 metric tonnes. After the seasonal adjustments the surplus stood at 90000 tonnes. The apparent refined Copper balance for the first 8 months of 2009 indicates a production deficit of 32000 tonnes. Production deficit for the period of 2008 was 117000 tonnes.

World mine production grew by 3% in the first 8 months of 2009. Indonesia was the main driver towards the growth where the production increased by 304000 tonnes.
Lower output in Chile and US registered declines. World refined production declined by 0.8% during Jan-August 2009. Chinese apparent usage of refined Copper was up 45% or 1.5 million tonnes but remaining world registered a decline of 19% or 1.7 million tonnes. Copper usage in European Union, Japan and US declined by 23%, 34% and 23% respectively. Now with Chinese usage slowing down the impact would be big.

ICSG predicts World Copper mine production in 2009 to rise by 2.9% to 15.8 metric tonnes. Mine production in 2010 will increase by 6.7% to 16.9 metric tonnes due to higher increase in production capacity. World refined Copper production for 2009 and 2010 are expected to remain stable declining by 0.8% in 2009 to 18.1 metric tonnes and a increase of 0.7% to 18.2 metric tonnes.

Correlation between LME inventories and prices missing

In November a distinct difference between LME inventories data and prices was registered. The prices of three month forward Copper gained 5.1% to $ 6831 per tonne on 30^th Nov 2009. The prices hit a high of $ 6868 per tonne on 23^rd Nov 2009, its 14 months highs. During the same period LME inventories registered a rise of 66350 tonnes or 18% to 438525 tonnes on 30^th Nov 2009. The disparity has been created by the rise of EURO against the Dollar. Dollar was at 1.4771 at 2^nd Nov 2009 while it settled the month at 1.5004 down 233 pips or 2%. In domestic markets MCX futures of Copper settled at Rs 325.4 per kg or 5.4% on 30^th Nov 2009 as against Rs 308.75 per kg at the start of the month.

Jitters from Dubai

This time the economic tsunami came from the Middle East. On 26^th Nov 2009 major world markets faced pressure as the debt payments to European banks by Dubai got suspended. The news was a speed breaker for the constant rise of EURO. The trouble was short lived as the sentiments were again favoring the growth of world economy.

Helping the markets recover from the knee jerk reaction was the announcements from Dubai government. The Dubai government announced a restructuring of Dubai World after the company shocked creditors by requesting a standstill on all financings to it and its subsidiary Nakheel.

Dubai World, one of the emirate's main state holding companies, asked for a delay on maturities until at least May 30, 2010. The company has total debts of $59 billion, including $3.52 billion of Islamic bonds due December 14 from its property unit Nakheel.

Outlook:

Copper shot up sharply in the last few weeks irrespective of the persistent rise in the LME inventories as a slide in the US dollar Now with inventories registering a rise in every passing day and vulnerability of the increase in Chinese imports in the coming days suggest that the rise will be limited and cracks at upper end are now visible.

The news of loan suspensions from Dubai was short lived yet it has caution the investors from taking hefty pie of risk bearing assets. The impact on EURO will be calculated as the days pass on. That will put pressure on the Copper prices going forward. Technically speaking Copper on domestic futures markets can correct upto Rs 310 per kg levels in near term with upper cap at Rs 340 per kg. In Dollar some fresh bouts of rally is expected against the EURO, which will bring decline in metals prices.

Aluminium: Behaviour Of Economic Recovery Will Cap Prices

Riding higher on the back of Dollar:

Recent months have brought surprising yet soothing rally for the Base metals complex. Lacking any positive fundamentals the rally in major Base metal counters have been far from being justified. Aluminium is one such Base metal which has jumped as much as 5.5% in November so far on the back of weak Dollar. Weaker dollar makes the commodities denominated in the Dollar cheaper. In November the LME three month forward prices have tested a high of $ 2069 per tonne on 18^th Nov 2009. During the month of October the prices gained modestly by 2% or $ 41 to $ 1934 per ton on 30^th Oct 2009. The prices in the coming days are expected to show some more uptrend on technical basis and fall in Dollar. However the rally will be limited.

Global Production Of Primary Aluminium Declines:

International Aluminium Institute’s (IAI) latest data for the period of Jan-Oct 2009 states that the World primary Aluminium production declined by 9% to 19.51 million tons as compared to 21.44 million tons during the corresponding period previous year. Overall, Asia produced 3.65 million tons of primary Aluminium in Jan-Oct 2009 a rise of 11.36% from Jan-Oct 2008. With the exception of Asia, all other regions posted a decline in the primary Aluminium production. North America registered the worst decline of 18% due to lower demand from Aluminium consuming sectors.

Primary aluminium output in China rose to 10.30 million tonnes in Jan-Oct from 11.16 tonnes in Jan-Oct 2008, provisional figures from the International Aluminium Institute (IAI) showed. In October 2009 China's aluminium production was 1.294 million tonnes and last year the country produced 1.219 million tonnes, the institute said.

ABARE expects 2009 average Aluminium prices to be lower

Australian Bureau of Agricultural and Resource Economics (ABARE) latest report suggests that the average Aluminium prices for the year 2009 would be 36 percent lower at $ 1600 per tonne than the 2008 average price. The prices in the fourth quarter at 2009 are expected to remain higher. In 2010 the production is expected to exceed consumption which will result in lower prices. The LME stocks which are currently at 1 month highs are expected to increase to 14 weeks consumption. In the first 6 months world Aluminium consumption declined by 15 percent, yet in the rest 6 months the prices are expected to improve. Chinese government passed massive stimulus packages during the first half of 2009 which resulted in the increase of production of Aluminium. In 2009, Chinese consumption is expected to increase by 8 percent to 13.4 million tonnes.

OECD economies will be affected by lower industrial activity because of reduced demand for Aluminium. For the year 2009 OECD consumption is expected to decline by 27% to 12.4 million tonnes. Japan, US, Korea and Italy will remain the worst hit by decline in consumption.

China NDRC announces power price rise

China National Development and Reform Commission announced recently electricity price rise for Non-Residential use of 0.028 yuan (0.4 US Cents per KW hour). The increase in tariffs will increase the production cost electrolytic aluminium by nearly 400 yuan per metric tonne. Currently, producing one tonne of electrolytic aluminum consumes about 14,500 kWh of electricity. Thus, given an average price rise of 0.028 yuan per kWh, the production costs for electrolytic aluminum will be raised by around 400 yuan per tonne.

Indian Aluminium production increases in September

Indian Aluminium production increased in the month of September following the trial run production from Vedanta Aluminium Limited (VAL). Vedanta has commissioned its smelter at Jharsuguda from April, 2008 which is presently under trial production. On a monthly basis, NALCO registered a meager rise of 10 tonnes in Aluminium production in September 2009 by to 35010 tonnes as compared to production target of 35000 tonnes. On a cumulative basis Nalco’s production for the period of April-Sep 2009 was 207793 tonnes as against 177068 tonnes in April-Sep 2008. Bharat Aluminium Company production for Sep 2009 was 20534 tonnes as against 21107 tonnes the production target. When compared on a Y-o-Y basis, the cumulative production of NALCO was down 23% to 135285 tonnes in April-Sep 2009. Hindalco registered a rise of 19977 tonnes in the cumulative production for the period of April-Sep 2009 to 275051 tonnes from 255074 tonnes in Apr-Sep 2008. During June the production of Hindalco stood at 45890 as against a production target of 45985 tonnes.

The total production for the month of September 2009 stood at 119472 tonnes or 17% as against a production target of 102092 tonnes.

Sharp upswings in LME forward prices

LME inventories have maintained sharp uptrend in November 2009, however this has not been able to pullback the gains in the prices. In the month of November 2009, the three month LME aluminium prices traded in the range of $ 2069 - $ 1909 per tonne. The LME Aluminium contract started the month at $ 1909 per tonne on 2^nd Nov 2009, the prices managed to breach $ 2000 levels during the month and tested a high of $ 2069 per tonne on 18^th Nov 2009, the prices are now at $ 2015 per tonne levels on 20^th Nov 2009. The rise in LME prices was due to higher oil prices and a weaker greenback with funds taking new long positions. The stocks in the month of September across the globe were at 2.26 million metric tons as per the latest figures released by International Aluminium Institute. Total inventories in LME are at 4592850 tonnes on 20th Nov 2009 as compared to 4555525 tonnes at the start of the month. In domestic futures market benchmark Aluminium contract gained 6% to stand at Rs 94.9 per kg on 21^st Nov 2009 as against a start of Rs 89.55 per kg on 2^nd Nov 2009.

Outlook:

With Dollar now at 1.50 levels against the EURO, Aluminium prices will be able to find the cushion at the lower end of the spectrum. The recovery in the greenback has been quite modest and looks unsustainable in short term. However long term scenario brings with it hopes of the greenback recovering against its peers. This will ensure that the price levels of Aluminium don’t get stretched to far. Inventories levels are high and the consumption patterns across major nations are still quite low. Power prices are going up in consuming nations, the major one being China which will get impacted by the rise of electricity rates for Non residential usage. On one hand this looks a positive trigger for the Aluminium prices as production will get impacted adversely on the other it will ensure that the balance between higher inventories and lower demand is maintained. Therefore any expectation of rapid rise in Aluminium prices seems unviable as of now.

The prices will be enjoying the short term rallies with long term outlook still capped on the behavior of economic recovery across the globe. The prices in domestic markets will face resistances of Rs 99 per kg. Sell on rallies will be a strategy which can be adopted with prices targets of Rs 88-85 per kg.